DENVER—Gates Industrial Corp. P.L.C. reported increases in overall net sales and revenue for both its fourth quarter and full year financial results in its first year as a publicly traded company.
Net sales for the fourth quarter increased 1.3 percent to $792.1 million over the previous year, according to a company news release. Net income, however, decreased to $82.5 million compared to $130.2 during the previous period.
Revenue growth for the quarter was driven by particularly strong demand in industrial end markets and replacement channels, Gates said. Recent acquisitions, which included Turkey-based manufacturer of molded rubber and branched hoses Rapro, added 0.7 percent to net sales during the quarter, while foreign currency had a negative impact of 3 percent.
Net sales for the full year increased to $3.35 billion, a gain of 10.1 percent over the previous year's total. Net income also increased to $271.1 million, up from $182.7 in 2017. Emerging markets, particularly in replacement channels, led regional growth for the year. Recent acquisitions added 3.5 percent to net sales during the period and foreign currency had a positive impact of 0.6 percent.
By segment, power transmission reported a decrease of 4.4 percent in net sales to $490.7 million in the quarter. That decline comes from a decline in core revenue and unfavorable foreign currency effects, Gates said. Despite regional slowdown in China and Europe auto first fit markets, Gates continued to see strong replacement channel sales growth, with the highest global growth rates in North America and China.
For the full year, power transmission net sales increased 4.5 percent to $2.1 billion over 2017, showing core revenue growth and favorable foreign currency effects. Gates said the strong growth was driven by robust replacement channel sales globally and growth across all end markets and regions.
Fluid power net sales increased 12.2 percent to $301.4 million in the fourth quarter, including core revenue growth, incremental net sales from recent acquisitions of 2.1 percent and a partial offset from unfavorable foreign currency effects. Strong industrial end market demand, particularly in mobile hydraulic applications, drove those gains. Gates also saw revenue growth in both developed and emerging markets during the quarter.
For the year, fluid power net sales increased 21 percent to $1.25 billion, showing core revenue growth, net sales from acquisitions of 10.4 percent and favorable foreign currency effects. The increase was driven by double-digit core revenue growth in nearly all regions and industrial end markets, Gates said. The full year growth of Gates' first-fit business outpaced that of the replacement channel.
Power transmission revenue in 2018 by region was led by North America at 36 percent, according to a Gates presentation at Evercore ISI Industrial/Housing & Building/Airlines Conference. Next came the Europe, Middle East and Africa region at 30 percent, then China and East Asia & India at 15 percent each, and South America at 4 percent.
By channel, power transmission was led by replacement at 62 percent, followed by automotive first-fit at 26 percent and industrial first-fit at 12 percent.
Fluid power revenue also came mostly from North America at 68 percent, with EMEA next at 17 percent, EA&I at 7 percent, China at 5 percent and South America at 3 percent. By channel, replacement made up 61 percent, with industrial first-fit making the balance at 39 percent.
Overall, Gates' replacement channel made up 62 percent of net sales for the company during the past year, with 38 percent overall coming from first-fit. Last year's revenue can be further broken down to show industrial end-markets make up 58 percent, with automotive end markets taking 42 percent of the total.
Of that $3.35 billion revenue total, 48 percent of it came from North America, and 26 percent from EMEA. East Asia & India makes up 12 percent, China takes 11 percent and South America comes in at 3 percent. Gates has more than 120 locations around the globe.
Gates has seen continued revenue growth over the last three years, at $3.35 billion in 2018, up from $3.04 billion in 2017 and $2.75 billion in 2016.
The company plans to continue investing in capacity, with about capital expenditures returning to about 3 percent of sales. Gates said it will prioritize capital projects with a high return on invested capital. It also plans to continue deleveraging, and to utilize mergers and acquisitions to accelerate organic strategies with a focus on deals with high value concentration.
Gates finished its first year as a publicly traded company on the New York Stock Exchange through an IPO with 38.5 million shares at a price of $19 per share, a potential valuation of $731.5 million. The net proceeds of the IPO were to be used to redeem senior notes and repay outstanding indebtedness. At the time of the IPO, the company's Form S-1 listed its total indebtedness at about $3.92 billion. Gates' 4Q financial report lists its total outstanding debt at $3 billion.